'I'm hoping Neil Woodford will continue to perform': Experts say be cautious before rushing into new fund from wonder investor

Today sees the launch of a new investment fund to be run by one of the country’s most successful managers, Neil Woodford. The Mail on Sunday looks at whether investors should buy into this much hyped new UK fund or ignore it.

What is happening?

Neil Woodford was a star fund manager at investment group Invesco Perpetual for more than 25 years, doing something that many rivals were incapable of achieving – outperforming the stock market for long stretches at a time.

The two big investment vehicles he ran – Invesco Perpetual Income and Invesco Perpetual High Income – were so successful that they became multi-billion pound funds.

In September last year Woodford resigned, eventually leaving Invesco in March to set up his own investment company, Woodford Investment Management. Tomorrow, he launches the Woodford Equity Income fund.

Why buy the fund?

I’m hoping Woodford will continue to perform

One investor prepared to back Neil Woodford’s new investment fund is Katja Klug, a commercial manager for a leading American financial data company.

Katja, 38, who is single and lives in London’s Docklands, is part of the Great Britain team that will compete in the European Dragon Boat Federation championships next month at Racice in the Czech Republic.

She will authorise her broker, Chelsea Financial Services, to switch her investment in former Woodford fund Invesco Perpetual High Income to the new Woodford Equity Income fund.

‘Before I invested in High Income I held various investment funds and had mixed fortunes,’ says Katja.

‘But by investing a little monthly I managed to build a reasonable investment pot.

‘The fund delivered consistent performance, something I had not enjoyed before. I’m hoping that Neil Woodford can continue to deliver this consistency in his new fund.’

Woodford is confident he can replicate the success he and his followers enjoyed at Invesco. The new fund will be run in a similar fashion to the way he ran money for Invesco. So pharmaceutical and tobacco stocks will feature prominently in the portfolio as well as some big British household names – BAE Systems and HSBC. He will also invest in overseas companies and unquoted businesses.

Woodford’s reputation is such that major wealth manager St James’s Place and the investment arm of Hargreaves Lansdown have already asked him to run portfolios for them, independent of the new retail fund.

Will it be right for income seekers?

Yes, although it is unlikely to generate the consistent income growth that many investors hanker after. Unlike equity income oriented investment trusts that can control the income payments they make to investors – squirreling some dividends from holdings into reserves in the good times to pay out when dividends are under pressure – Woodford’s vehicle will not have this flexibility. So the income journey is likely to be bumpy. But the four per cent yield on the fund is attractive and investors will have the option to take quarterly income.

Who is positive about it?

Among those financial advisers who like what Woodford is doing is Gavin Haynes, managing director of Bristol-based Whitechurch Securities, He likes the meticulous way Woodford manages money. He says: ‘He protects investors from the worst of stock market falls, making him one of the more conservative fund managers with which to entrust your money.’

Darius McDermott, boss of London-based Chelsea Financial Services describes Woodford as ‘exceptionally skilled’, adding: ‘At Invesco, he not only avoided the bursting of the technology bubble in 2000, but he was also wary of British banks in the run-up to the 2008 financial crisis.

‘It’s rare I look at a new retail fund launch with real excitement, but this is one that has got me drooling.’

Brian Dennehy, boss of fund research company FundExpert, is underwhelmed. He believes the fund’s performance in the first two years will be driven more by luck than skill.

Confident: Neil Woodford is keen to get stuck in right away

If the UK market falls – and he says it could easily do so in response to the withdrawal of quantitative easing and a correction in the ‘overvalued’ US market – the fund will lose money, but not as much as many rival funds.

‘Buying a new fund is pointless unless it is offering something unique,’ adds Dennehy. ‘This fund isn’t different from what is already available.

‘We will wait at least six months before assessing whether we should recommend.’

Like Dennehy, Jason Hollands, managing director of London-based Bestinvest, says there is ‘no need to rush into the fund at launch’.

He explains: ‘It will still be around at the end of the tax year – in April next year – when many investors use their Isa allowance.’

He also believes investors in search of equity income should look at other funds that have stood the test of time, such as Fidelity MoneyBuilder Dividend, Schroder UK Alpha Income and Threadneedle UK Equity Income.

Woodford says it can. In the run up to the launch, he has gone back to Invesco Perpetual and recruited a team of UK fund managers and analysts. They will play a particularly crucial role in identifying unquoted companies to include in the fund.

According to Woodford he has a better infrastructure behind him now than at Invesco. The focus is all about ensuring that the new fund has every chance of success.

Will it deliver instant profits at the launch?

Not a chance. The fund is designed to deliver returns over the long term and its performance will largely be determined by how the UK stock market fares. Unless you are going to hold it for at least five years, it’s probably not worth buying.

Do star fund managers always come up trumps?

No. Like Woodford, Anthony Bolton had huge success running UK investments in the 1980s and 1990s for asset manager Fidelity. But when he decided to try his luck in China, he came horribly unstuck. The Fidelity China Special Situations investment trust barely made any money for investors under his four-year stewardship. What differentiates Bolton and Woodford is that the latter is sticking to a market he knows intimately.

How do you buy the fund?

It can be bought through all leading online fund brokers including Charles Stanley and Hargreaves Lansdown. Ongoing charges will vary according to the deal that individual brokers have struck.

Hargreaves Lansdown has pared down the fund’s annual charge for users of its Vantage service from 0.75 per cent to 0.6 per cent.

When combined with its own charge for using the Vantage platform service, most investors will pay a total annual management fee of 1.05 per cent.